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2020 (8) TMI 345
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.... 2018 whereby, the Appellate Tribunal has rejected the contention that the application made by respondent No. 2 under Section 7 of the Code, seeking initiation of Corporate Insolvency Resolution Process-'CIRP' for short in respect of the debtor company (respondent No. 1 herein), is barred by limitation; and has declined to interfere with the order dated 09.08.2018, passed by the National Company Law Tribunal, Mumbai Bench- Hereinafter also referred to as 'the Adjudicating Authority' or 'the Tribunal' or 'NCLT' in CP(IB)- 488/I&BP/MB/2018, for commencement of CIRP as prayed for by the respondent No. 2. 2. A brief introduction of the parties and the subject matter as also a thumbnail sketch of the relevant orders passed in this matter and the issue involved shall be apposite at the very outset. 2.1. The appellant Shri Babulal Vardhaji Gurjar has been the director of the respondent No. 1 company viz., Veer Gurjar Aluminium Industries Pvt. Ltd. - Hereinafter also referred to as 'the corporate debtor' On or about 21.03.2018, the respondent No. 2 JM Financial Assets Reconstruction Company Pvt. Ltd. - Hereinafter also referred to as 'the financial creditor', while stating its capacity a....
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.... in the Schedule to the Limitation Act, 1963 that is divided in three major Divisions viz., First Division (relating to suits); Second Division (relating to appeals); and Third Division (relating to applications). Each Division is further divided in parts with reference to the subject matter. However, the Articles in the Schedule are arranged ad seriatim. Hence, for brevity and continuity, the Articles are mentioned with reference to 'the Limitation Act' only. The Schedule and particular Part/Division have been referred wherever required contextually and hence, the application is within limitation. 4. In this appeal, the order so passed by the Appellate Tribunal is in challenge. The appellant would contend that limitation period for an application under Section 7 of the Code is three years as per Article 137 of the Limitation Act, where the date of alleged "default" is the starting point of limitation; and in the present case, such date of default being specifically mentioned as 08.07.2011, the application filed by the respondent No. 2 in the month of March 2018 is barred by limitation. On the other hand, the respondents would argue that the liability in relation to the debt in qu....
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....n 15.11.2011, demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002- Hereinafter also referred to as 'the SARFAESI Act' was issued by Indian Overseas Bank to the corporate debtor and its guarantors. These steps were followed up with recovery proceedings against the corporate debtor by the consortium of lenders and respondent No. 2 in OA No. 172/2013 before the Debts Recovery Tribunal, Aurangabad-'DRT' for short under Section 19 of the Recovery of Debts Due to the Banks and Financial Institution Act, 1993- Hereinafter also referred to as 'the Act of 1993'. 6.3. Even when the aforesaid proceedings were pending before DRT, on or about 21.03.2018, the respondent No. 2 moved an application before the Adjudicating Authority under Section 7 of the Code, in Form 1 as provided in the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016- Hereinafter also referred to as 'the Rules of 2016', for initiation of CIRP in relation to the corporate debtor while stating its own capacity as the financial creditor, for being the assignee of loans and advances disbursed by Corporation Bank....
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....oned by the applicant. In Point No. 8, the applicant was required to give out other documents "in order to prove the existence of financial debt, the amount and date of default". The contents on this Point No. 8 of Part-V of the application could be reproduced as under:- "8.LIST OF OTHER DOCUMENTS ATTACHED TO THIS APPLICATION IN ORDER TO PROVE THE EXISTENCE OF FINANCIAL DEBT, THE AMOUNT AND DATE OF DEFAULT i. Registered notice dated 05.07.2011 issued by Indian Overseas Bank to the corporate debtor to repay the overdue amount. Hereto annexed and marked as Exhibit MM is the copy of said registered notice. ii. Demand notice dated 15.11.2011 issued under section 13 (2) of the Securitisation Act by Indian Overseas Bank being consortium leader. Hereto annexed and marked as Exhibit NN is the copy of said Demand notice. iii. Publication of Demand Notice issued in two newspaper i.e Business Standard and Saamna under the SARFEASI Act dated 28.12.2011. Hereto annexed and marked Exhibit OO is the copy of said Paper Publication. iii. (sic). Objection to the Demand Notice and the reply to the said Objections by IOB dated 14.01.2012 and 21.01.2012 respectively. Hereto annexed and ma....
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....g the objections of corporate debtor in relation to the frame of application and the correctness of loan accounts, held that the applicant was entitled to initiate CIRP under Section 7 of the Code when there was a debt and there was default; and that being a statutory remedy available to the financial creditor, the corporate debtor cannot question its maintainability only for the applicant having adopted other proceedings under other enactments. As regards the question of debt and default, the NCLT, inter alia, observed and held as under:- "16. The Corporate Debtor contended that demand notice issued under the SARFAESI Act, by Indian Overseas Bank does not contain the date of NPA of the loan of Corporation Bank. The petitioner in the rejoinder submitted that the date of NPA of Corporation Bank was mentioned as 08.07.2011 in the SARFAESI Notice. This Bench has gone through the SARFAESI Notice and the date of NPA of Corporation Bank is mentioned as 08.07.2011 at pg. no. 579. Hence this contention of the Corporate Debtor fails. Further the explanation to Section 7(1) of IB Code provides that a default includes a default in respect of a financial debt owed not only to the Applicant F....
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....09.08.2018, the appellant, erstwhile director of the corporate debtor, approached the National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 549 of 2018 under Section 61 of the Code, challenging admission of the application made by the respondent No. 2. 8.1. The appeal so filed by the appellant was considered and summarily dismissed by the Appellate Tribunal by way of its order dated 17.09.2018. The Appellate Tribunal took note of the contention urged on behalf of the appellant that a petition under Section 19 of the Act of 1993 was pending before DRT wherein question had been raised as to whether the amount was payable to the assignee or not. As regards this, the Appellate Tribunal observed that initiation of CIRP cannot be annulled merely for pendency of a petition under Section 19 of the Act of 1993; and in terms of Section 14 of the Code, all such pending matters cannot proceed during the period of moratorium. 8.2. It was also contended on behalf of the appellant that there was no debt payable. After noticing this contention, the Appellate Tribunal called upon the appellant to file an affidavit that no amount was received or the amount received had al....
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....t the principal issue relating to limitation, though raised by the appellant, was not even decided by the Appellate Tribunal; and after referring to the decision in B.K. Educational Services Pvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC 5601, wherein it was held that the Limitation Act is applicable to application filed under Section 7 of the Code, this Court remanded the matter to the Appellate Tribunal for deciding the issue of limitation with respect to the application in question in accordance with law while setting aside the impugned order dated 17.09.2018 and while granting liberty to the parties to submit additional affidavit/s in support of their respective contentions. This Court observed and ordered, inter alia, as under:- "Although, we find that the ground articulated in the appeal memo is vague, but, as the objection regarding limitation goes to the root of the matter and touches upon the jurisdiction of the National Company Law Tribunal to proceed with the claim of the respondent; and since the recent decision of this Court in B.K. Educational Services Pvt. Ltd. Vs. Paras Gupta & Associates - AIR 2018 SC 5601 has held that the question of limitation is applicabl....
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....upra) as also Section 238-A of the Code to notice that law of limitation is applicable to the application under Section 7 of the Code. However, in paragraph 16, the Appellate Tribunal made the observation that 'for filing the application under Section 7 of the I&B Code, Article 132 of Part 2 (other application) is applicable'; and proceeded to reproduce the said Article 132 of the Limitation Act.( Such a reference by the Appellate Tribunal to Article 132 of the Limitation Act appears to be entirely inapt because that relates to the application to High Court for certificate of fitness to appeal to this Court and provides for the limitation of sixty days from the date of decree or order. Be that as it may, the observation with extraction of Article 132 appears to be a matter of accidental slip; and we would leave the said Paragraph 16 of the impugned order at that only) Thereafter, in paragraphs 17 to 19, the Appellate Tribunal referred to the frame of Schedule to the Limitation Act and its Divisions, dealing with suits, appeals and applications respectively. Coming to the crux of the matter, in paragraph 20 of the impugned order, the Appellate Tribunal referred to Article 137 dealin....
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.... of suit or money suit; and the period of limitation prescribed in First Division of the Limitation Act is not applicable to the proceedings under the Code. However, thereafter in paragraph 25 of the impugned order, the Appellate Tribunal observed that though the law of limitation as prescribed in First Division, Second Division and Part I of Third Division of the Schedule to the Limitation Act is not applicable, the corporate debtor could take a plea that "debt" is not due, as it is not payable in law being barred by limitation. These paragraphs 24 and 25 of the impugned order read as under: - "24. In 'Binani Industries Ltd. vs. Bank of Baroda & Anr.' - Company Appeal (AT) (Insolvency) NO. 82 of 2018' this Appellate Tribunal held that 'Insolvency & Bankruptcy Code' does not relate to litigation nor it is a suit or money suit. In that background the period of limitation prescribed in the First Division is not applicable through I&B Code proceedings. 25. Though we have held that the law of limitation for filing a suit (First Division) or Appeals (Second Division) or application under Part I (Third division) are not applicable, the 'Corporate Debtor' can take a plea that 'debt' ....
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.... There is a finding that there is a continuous cause of action. The appellant has not disputed that 9 properties i.e. land and building have been mortgaged by the 'Corporate Debtor' with Respondent No. 2 - 'Financial Creditor'. Respondent No. 2 also preferred a criminal proceeding on 27th June, 2017 as the enforcement mortgage of which possession was taken by 2nd Respondent after the order passed by the DRT, Aurangabad. 29. Part V (First Division) of Limitation Act relates to 'Suits relating to immovable property' to recover possession of the property mortgaged and afterwards transferred by the mortgagee for a valuable consideration. The period of limitation is 12 years since the transfer becomes known to the plaintiff [Article 61(b)]. 30. In view of the aforesaid position of law, the property having mortgaged, we also hold that the claim is not barred by limitation as the period of limitation is 12 years with regard to mortgaged property and in terms of Section 5 (7) read with Section 5(8) as the property is mortgaged, Respondent No. 2 also comes within the meaning of 'Financial Creditor'. 31. Therefore, we hold that the application under Section 7 is not barred by limita....
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....vices (supra) and has contended that therein, it is categorically held that Article 137 of the Limitation Act applies to the application under Section 7 of the Code and hence, the limitation period is of three years, which is to be counted from the date of default. 13.2. With reference to the process envisaged by the Code and the Rules of 2016, where the financial creditor is required to mention the date of default in the application and also to adduce evidence of default, the learned senior counsel has argued that in the application under consideration, which was filed on 21.03.2018, the respondent No. 2 mentioned the date of default as 08.07.2011 and, for the evidence of default, only the documents pertaining to the NPA were attached i.e., until the year 2011. Hence, according to the learned counsel, on the averments as taken and evidence as adduced, the application so filed by the respondent No. 2 is clearly barred by limitation and deserves to be rejected outright. 13.3. The learned senior counsel has further referred to the decision in K. Sashidhar v. Indian Overseas Bank: 2019 SCC Online SC 257- Now reported in (2019) 12 SCC 150 and has submitted that therein, this Court ha....
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....' 13.4. The learned senior counsel has further submitted that the reasonings adopted by NCLAT stand thoroughly disapproved by this Court in the decisions above-referred as also that in Civil Appeal No. 7673 of 2019: Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. & Anr. Now reported in (2019) 10 SCC 353 and, therefore, the impugned order cannot be sustained from any angle. 13.5. The learned senior counsel has yet further referred to the three- Judge Bench decision in the case of Jignesh Shah and Anr. v. Union of India and Anr. : 2019 SCC Online 1254- Now reported in (2019) 10 SCC 750 and has submitted that therein too, this Court has analysed in detail the applicability of the Limitation Act to the applications of winding up being transferred to NCLT and has held that enforcement of IBC in 2016 will not give a new life to the time-barred debts; and if the application is filed beyond three years from the date of default, then the same will be barred by time. 13.6. The learned senior counsel has argued that the debt shown in the balance sheet does not revive the limitation period of three years as applicable to the IBC under Article 137 of the Limitation Act for the reasons that the d....
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....ed by the respondent No. 1 is baseless and fallacious because such a contention has been raised for the first time in this second round of appeal in this Court; and that the appellant is rather guilty of taking false pleadings and of perjury in his attempts to mislead. 14.2. While refuting the submissions made on behalf of the appellant, it has been strenuously argued by the learned senior counsel for the respondent No. 2 that the application under Section 7 of the Code is not barred by limitation only because of initial date of default being mentioned therein as 08.07.2011. The learned counsel would submit that the contentions on behalf of the appellant are unsustainable since the debt in question had been legally and unequivocally admitted to be due and payable in writing by the respondent No. 1 all throughout from the year 2011 until 2017 in its balance sheets filed along with annual returns before the Registrar of Companies; and the debt had been shown as the loan amount outstanding to Corporation Bank, who had assigned the same to the respondent No. 2. 14.3. While heavily relying on the observations in Jignesh Shah (supra), learned senior counsel has contended that as per th....
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....ringent manner would result in a fatal flaw in equity and the same may also prejudice scores of legal recourse by many other banks and financial institutions currently in Courts/Tribunals on mere technicality that was unforeseen and unconceived in past and hence, the documents making out a case for extension of limitation period could not be filed. Other way round, according to the learned counsel, the unrestrained applicability of Section 238-A of the Code in an anomalous manner suggested on behalf of the appellant would compel all the financial institutions to immediately proceed and file the application under Section 7 before the expiry of three years exactly from the date of default, in spite of the fact that any borrower, in order to overcome its financial constraints to repay might be ready and willing to comply with the requirements of Section 18 of the Limitation Act for extension of period of limitation. The learned counsel has relied on the decision of this Court in N.Balakrishnan v. Krishnamurthy : (1998) 7 SCC 123 to submit that the rules of limitation are not meant to destroy the rights of the parties. 14.6. The learned senior counsel has, therefore, submitted that th....
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....lication under Section 7 of IBC could be filed only within three years from the date of NPA, it would frustrate the objective of IBC to restructure the stressed assets and ensure maximisation of the value of stressed assets. 15.3. The learned counsel has again relied on Section 18 of the Limitation Act and the aforesaid decisions in Jignesh Shah and Mahaveer Cold Storage to submit that the contention of the appellant that cause of action arose in 2011 and right to sue started ticking in the said year is baseless, as the corporate debtor had continuously admitted its liability in its audited balance sheets until the year 2017 and further admitted its liability with an offer for OTS. Therefore, according to the learned counsel, the contention that the debt is barred by limitation cannot be taken by the corporate debtor in the given facts and circumstances besides that such a contention is contrary to the undisputed facts and admission of liability. 15.4. The learned counsel for the respondent No. 1 has also attempted to refer to the proceedings already undertaken in this matter pursuant to the order of admission by NCLT, including the meetings of, and resolutions by, CoC; and conse....
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....made by the respective learned counsel as also the reasonings adopted by the Appellate Tribunal, at the first it would be appropriate to take note of the relevant statutory provisions in the Insolvency and Bankruptcy Code, 2016 and the Limitation Act, 1963. 17.1. The expressions generally used in the Insolvency and Bankruptcy Code, 2016 are defined in Section 3 thereof. The relevant definitions occurring in Section 3 of the Code are as under: - "3. Definitions. -In this Code, unless the context otherwise requires,- **** **** **** (6) "claim" means- (a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured; (b) right to remedy for breach of contract under any law for the time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, unmatured, disputed, undisputed, secured or unsecured; (8) "corporate debtor" means a corporate person who owes a debt to any person; **** **** **** (10): "creditor" means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured c....
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....etrospective effect from 06.06.2018 may file an application for initiating corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority when a default has occurred. Explanation.- For the purposes of this sub-section, a default includes a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. (2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with such fee as may be prescribed. (3) The financial creditor shall, along with the application furnish- (a) record of the default recorded with the information utility or such other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as an interim resolution professional; and (c) any other information as may be specified by the Board. (4) The Adjudicating Authority shall, within fourteen days of the receipt of the application under sub-section (2), ascertain the existence of a default from the records of an information utility or on the basis of other evidence furnishe....
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....tle or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. (2) Where the writing containing the acknowledgment is undated, oral evidence may be given of the time when it was signed; but subject to the provisions of the Indian Evidence Act, 1872 (1 of 1872), oral evidence of its contents shall not be received. Explanation.--For the purposes of this section,-- (a) an acknowledgment may be sufficient though it omits to specify the exact nature of the property or right, or avers that the time for payment, delivery, performance or enjoyment has not yet come or is accompanied by a refusal to pay, deliver, perform or permit to enjoy, or is coupled with a claim to set-off, or is addressed to a person other than a person entitled to the property or right; (b) the word "signed" means signed either personally or by an agent duly authorised in this behalf; and (c) an application for the execution of a decree or order shall not be deemed to be an application in respect of any property or right." 17.7. As regards the period of limitation for the application in question, Article 137, as contained in Part II of Third Divis....
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....n in the case of Innoventive Industries (supra) that was decided on 31.08.2017. Therein, this Court, inter alia, pointed out that 'one of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process'. 18.2.1. In the case of Innoventive Industries, this Court was essentially concerned with the question as to whether the proceedings under IBC could be stalled where there was a moratorium to the company concerned under the Maharashtra Relief Undertakings (Special Provisions) Act, 1958. Amongst other aspects, this Court ruled, with reference to the non obstante clause contained in Section 238 of the Code that the same being of Parliamentary enactment, would prevail over the limited non obstante clause of the State enactment; and thus, the Maharashtra Act cannot stand in the way of Corporate Insolvency Resolution Process under the Code- Section 238 of the Code reads as under: -. "238. Provisions of this Code to override other laws. -The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force o....
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.... detailed form in 5 parts, which requires particulars of the applicant in Part I, particulars of the corporate debtor in Part II, particulars of the proposed interim resolution professional in Part III, particulars of the financial debt in Part IV and documents, records and evidence of default in Part V. Under Rule 4(3), the applicant is to dispatch a copy of the application filed with the adjudicating authority by registered post or speed post to the registered office of the corporate debtor. The speed, within which the adjudicating authority is to ascertain the existence of a default from the records of the information utility or on the basis of evidence furnished by the financial creditor, is important. This it must do within 14 days of the receipt of the application. It is at the stage of Section 7(5), where the adjudicating authority is to be satisfied that a default has occurred, that the corporate debtor is entitled to point out that a default has not occurred in the sense that the "debt", which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. The moment the adjudicating authority is satisfied that a default has occ....
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.... be repaid in full, and shareholders/investors are able to maximise their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern. (See ArcelorMittal- ArcelorMittal India (P) Ltd. v. Satish Kumar Gupta & Ors: (2019) 2 SCC 1 at para 83, fn 3). 28. It can thus be seen that the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. The Code is thus a beneficial legislation which puts the corporate debtor back on....
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....corporate debtor back on its feet, not being a mere recovery legislation for creditors. 19.1. When the Corporate Insolvency Resolution Process is understood on the anvil of the aforementioned fundamentals on the spirit and intent of IBC, it is also evident that such a process is not intended to be adversarial to the corporate debtor but is essentially to protect its interests. 19.2. In relation to a financial creditor, the trigger for CIRP is default by the corporate debtor of rupees one lakh or more against the debt/s. When seeking initiation of CIRP qua a corporate debtor, the financial creditor is required to make the application in conformity with the requirements of Section 7 of the Code while divulging the necessary information and evidence, as required by the Rules of 2016. After completion of all other requirements, for admitting such an application of the financial creditor, the Adjudicating Authority has to be satisfied, as per sub-section (5) of Section 7 of the Code, that "default" has occurred and, in this process of consideration by the Adjudicating Authority, the corporate debtor is entitled to point out that default has not occurred in the sense that the "debt", w....
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.... this Court in the case of B.K. Educational Services (supra) that was rendered on 11.10.2018. 22. In B.K. Educational Services (supra), while upholding the validity of Section 238-A of the Code, this Court took note of the said report of the Insolvency Law Committee and observed as under:- "11. Having heard the learned counsel for both sides, it is important to first set out the reason for the introduction of Section 238-A into the Code. This is to be found in the Report of the Insolvency Law Committee of March 2018, as follows: "28. APPLICATION OF LIMITATION ACT, 1963 28.1. The question of applicability of the Limitation Act, 1963 (the Limitation Act) to the Code has been deliberated upon in several judgments of NCLT and NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected. In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a re....
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.... Code being exhaustive in nature, would result in overriding the Limitation Act and as to whether the object of the legislature was to apply the limitation prescribed under the Code retrospectively. This Court, relying on a plethora of judgments and the said Insolvency Law Committee Report of March, 2018 stated the views in no uncertain terms that,- "34....... the legislature did not contemplate enabling a creditor who has allowed the period of limitation to set in to allow such delayed claims through the mechanism of the Code. The Code cannot be triggered in the year 2017 for a debt which was time-barred, say, in 1990, as that would lead to the absurd and extreme consequence of the Code being triggered by a stale or dead claim, leading to the drastic consequence of instant removal of the present Board of Directors of the corporate debtor permanently, and which may ultimately lead to liquidation and, therefore, corporate death. This being the case, the expression "debt due" in the definition Sections of the Code would obviously only refer to debts that are "due and payable" in law, i.e., the debts that are not time-barred. That this is the case has already been held by us in the ....
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....ion 7 and/or Section 9 of the Code on and from its commencement on 1-12-2016 till 6-6-2018. That question was examined in the context of Section 238-A inserted in the I&B Code by the self-same Amendment Act of 2018. The Court after adverting to the contents of the report of the Insolvency Law Committee of March 2018 and other provisions of the Code and other enactments, opined that Section 238-A was clarificatory in nature and being a procedural law, came to hold that it had retrospective effect. The Court held that taking any other view would result in an incongruous situation as the provisions of the Limitation Act would apply in some set of cases to be decided by the same Tribunal and not in other set of cases. Besides, the Court adverted to the principle that right to sue accrues on the date when default occurs and if the default occurred even three years prior to the date of filing of the application, the same cannot be treated as "debt that is due and payable" or "debt" due." (emphasis in bold supplied) 25. As noticed, the abovementioned decision in K. Sashidhar was rendered on 05.02.2019 wherein, the principles in B.K. Educational Services were undoubtedly restated by t....
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.... amount it owed to IL&FS. This notice was followed up by the winding up petition that was filed on 21.10.2016 by IL&FS against La-Fin in the Bombay High Court under Section 433(e) of the Companies Act, 1956. As noticed, this company petition was transferred to NCLT and was heard as an application under Section 7 of the Code. This transferred petition was admitted by NCLT while forming the opinion that as per the share-purchase agreement and the letter of understanding, a financial debt had been incurred by La-Fin. The appeal filed by the appellant Jignesh Shah was also dismissed by NCLAT. Hence, the orders passed by NCLT and NCLAT were challenged in this Court. A writ petition was also filed challenging the constitutionality of certain provisions of the Code. This has been the backdrop in which, the statutory bar of limitation against the petition filed by IL&FS was argued before this Court with reference to Section 238-A of the Code and the decision in B.K. Educational Services (supra). 25.2. This Court accepted the contentions urged on behalf of the appellants and while reproducing the relevant passages from B.K. Educational Services, held that the bar of limitation was operatin....
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....rovisions contained in Sections 433(e) and 434 of the Companies Act, 1956, for winding up in case of company being unable to pay its debts, this Court made yet further observations in Jignesh Shah (supra) that the trigger for limitation in such an action occurs when a default takes place after which the debt remains outstanding; and that date alone is relevant for reckoning the period of limitation. After reproducing Section 433(e) and 434 of the Companies Act, 1956, this Court said,- "28. A reading of the aforesaid provisions would show that the starting point of the period of limitation is when the company is unable to pay its debts, and that Section 434 is a deeming provision which refers to three situations in which a Company shall be deemed to be "unable to pay its debts" Under Section 433(e). In the first situation, if a demand is made by the creditor to whom the company is indebted in a sum exceeding one lakh then due, requiring the company to pay the sum so due, and the company has for three weeks thereafter "neglected to pay the sum", or to secure or compound for it to the reasonable satisfaction of the creditor. "Neglected to pay" would arise only on default to pay the ....
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....e cause of action in the present case was continuing, no limitation period would attach'; and while further holding that the recovery certificate of 2001 plainly showed that there was a default and there was no statable defence. After taking note of the relevant facts and the foundation of the orders passed by the Adjudicating Authority and the Appellate Tribunal, this Court disapproved the same while finding that the case was covered by the decision in B.K. Educational Services (supra) and while reiterating the passage abovenoted. To get out of the rigour of the ratio of B.K. Educational Services, a reference was made to the provisions of the Limitation Act providing for fresh period of limitation in the case of continuing cause of action and it appears that Section 23 of the old Limitation Act of 1908 was referred to [34 We have indicated the provision contained in Limitation Act, 1908 for the reason that in the cited decision, Section 23 has been referred and the decision of this Court reported in [1959] Supp. (2) SCR 476 has been cited. The corresponding provision, as regards continuing cause of action for specific category of cases is now contained in Section 22 of the Limitat....
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.... possession from them by their suit in 1922 was a continuing wrong. The decree obtained by the trustees in the said litigation had injured effectively and completely the appellants' rights though the damage caused by the said decree subsequently continued." Following this judgment, it is clear that when the recovery certificate dated 24-12-2001 was issued, this certificate injured effectively and completely the appellant's rights as a result of which limitation would have begun ticking. 5. This being the case, and the claim in the present suit being time-barred, there is no doubt that is due and payable in law. We allow the appeal and set aside the orders of NCLT and NCLAT. There will be no order as to costs." (emphasis in bold supplied) 28. A few days after the decision in Vashdeo R. Bhojwani, a three- Judge Bench of this Court had another occasion to apply and explain the ratio in B.K. Educational Services. That was in the case of Gaurav Hargovindbhai Dave (supra), decided on 18.09.2019. Therein, the financial creditor had stated in the relevant column of Form No. 1 of the application under Section 7 of the Code the date of default to be the date of NPA i.e., 21.07.201....
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....iance on para 7 of B.K. Educational Services Private Limited (supra), suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred. 7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature. 8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside." (emphasis in bold supplied) 29. Close on the heels of Gaurav Hargovindbhai Dave (supra), this Court dealt with similar issue yet again in the case of Sagar Sharma (supra), decided on 30.09.2019. Therein, apart from disapproving the proposition that the date of commencement of the Code could be the starting point of limitation (as noticed hereinabove), this Court again pointed out the fallacy ....
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....ation under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. Whether Section 18 Limitation Act could be applied to the present case 31. While the aforesaid principles remain crystal clear with the consistent decisions of this Court, the only area of dispute, around which the contentions of learned counsel for the parties have revolved in the present case, is about applicability of Section 18 of the Limitation Act and effect of the observations occurring in paragraph 21 of the decision in Jignesh Shah (supra). 32. We have noticed all the relevant and material observations and enunciations in the case of Jignesh Shah hereinbefore. Prima facie, it appears that illustrative reference to Section 18 of the Limitation Act, in paragraph 21 of the decision in Jignesh Shah, had only been in relation to the suit or other proceedings, wherever it could apply and where the period of limitation could get extended because of acknowledgment of liability. Noticeably, in contradistinction to the proceeding of a suit, this Court observed that a suit for recovery, which is a separate and independent proceedi....
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....ion in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as '8.7.2011 being the date of NPA'. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made. As noticed, even in Part-V of the application, the respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part- V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default. 33.1. Therefore, on the admitted fact situation of the present case, where only the date of default as '08.07.2011' has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be develop....
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....only be annulled. The reasonings of NCLAT 35. The foregoing discussion practically concludes the principal part of contentions urged in this matter but, to put the record straight, we may also deal with the reasonings adopted by NCLAT in the impugned order dated 14.05.2019. As noticed hereinbefore, though NCLAT has referred to the pendency of the application under Section 19 of the Act of 1993 as also the fact that corporate debtor had made a prayer for OTS in the month of July, 2018 but, has not recorded any specific finding about the effect of these factors. Only two reasons essentially appear to have weighed with NCLAT to hold that the application in question is within limitation: One, that the right to apply under Section 7 of the Code accrued to the respondent financial creditor on 01.12.2016 when the Code came into force; and second, that the period of limitation for recovery of possession of the mortgaged property is twelve years. The reasonings so adopted by NCLAT do not stand in conformity with the law declared by this Court and could only be disapproved. 36. The question as to whether date of enforcement of the Code (i.e., 01.12.2016) provides the starting point of li....
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....e application under Section 7 of the Code. When Article 137, being the residuary provision on the period of limitation for "other applications" is held applicable by this Court for the purpose of reckoning the period of limitation for an application under Section 7 of the Code, it remains rather inexplicable as to how the Appellate Tribunal could have applied any other Article of Limitation Act (and that too relating to suits) for the purpose of such an application? 37.2. In the totality of circumstances, we are also constrained to refer to paragraph 24 of the very same order wherein, the Appellate Tribunal has noticed its own decision in the case of Binani Industries, holding that the period of limitation prescribed in the First Division of the Schedule to the Limitation Act (providing limitation period for suits) is not applicable to the proceedings under the Code. However, the observations and findings in the later part of the impugned order are contrary even to those occurring in the said paragraph 24 of the very same order. 37.3 It again appears that in other cases too, similar reasoning prevailed with the Adjudicating Authorities as also the Appellate Tribunal, where the Ar....